FRESHSTART VENTURE CAPITAL CORP.
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1995
TABLE OF CONTENTS
TABLE OF CCONTENTS
Page
Accountants' Review Report 3
Statements of Financial Position as of
November 30, 1996 and May 31, 1996 5
Statements of Operations for the Six Months
Ended November 30, 1996 and 1995 7
Statements of Stockholders' Equity for the Six
Months Ended November 30, 1996 and 1995 8
Statements of Cash Flows for the Six Months
Ended November 30, 1996 and 1995 9
Notes to the Financial Statements 10
Supplemental Information 17
Selected Per Share Data and Ratios 18
Board of Directors
Freshstart Venture Capital Corp.
ACCOUNTANTS' REVIEW REPORT
We have reviewed the accompanying Statement of financial
position of Freshstart Venture Capital Corp. (the "Company")
as of November 30, 1996 including the schedule of loans
receivable as of November 30, 1996, and the related
statements of operations, stockholders' equity and cash
flows for the six months ended November 30, 1996 and 1995.
These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial statements
consists principally of obtaining an understanding of the
system for the preparation of interim financial statements,
applying analytical review procedures to financial data and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than
an examination in accordance with generally accepted
auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
As discussed more fully in Note 1 to the financial
statements, securities amounting to $8,574,521 as of
November 30, 1996 (265% of net assets), whose values have
been estimated by the Board of Directors in the absence of
readily ascertainable market values. We have reviewed the
procedures used by the Board of Directors in arriving at
their estimate of the value of such loans and have inspected
underlying documentation and, in the circumstances, we
believe the procedures are reasonable and the documentation
appropriate. However, because of the inherent uncertainty
of valuation, those estimated values may differ
significantly from the value that would have been used had a
ready market for such loans existed, and the differences
could be material.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of the Company as of November 30, 1996 and the
results of its operations and its cash flows for the six
months ended November 30, 1996 and 1995 in conformity with
generally accepted accounting principles.
3
We have previously audited, in accordance with generally
accepted auditing standards, the balance sheet of Freshstart
Venture Capital Corp. as of May 31, 1996, and the related
statements of income, shareholders' equity, and cash flows
for the year then ended; and in our report dated July 23,
1996, we expressed an unqualified opinion on those financial
statements and included an explanatory paragraph regarding
the possible effect on the financial statements of the
valuation of loans determined by the Board of Directors.
New York, New York
January 21, 1997
Michael C. Finkelstein
Certified Public Accountant
4
FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF FINANCIAL POSITION
ASSETS
<TABLE>
November 30, May 31,
1996 1996
<S> <C> <C>
Loans Receivable:
Long Term Portion (Notes 2 and 3) $ 8,755,079 $ 8,598,015
Less: Unrealized Depreciation on
Loans Receivable (Note 3) (180,558) (180,558)
___________ __________
8,574,521 8,417,457
Less: Current Maturities -
Loans Receivable (1,198,521) (1,178,444)
___________ __________
Total Loans Receivable-
Net of Current Maturities 7,376,000 7,239,013
__________ __________
Assets Acquired in Liquidation of
Portfolio Securities (Note 4) - -
__________ __________
CURRENT ASSETS
Cash (Note 15) 145,690 415,102
Accrued Interest (Notes 2 and 3) 101,588 92,946
Current Maturities-Loans Receivable 1,198,521 1,178,444
Prepaid Expenses and Other Assets 355,154 287,351
__________ __________
Total Current Assets 1,800,953 1,973,843
Fixed Assets - Net of Accumulated
Depreciation of $19,367 and $16,369
respectively (Note 2) 22,904 25,903
_________ __________
Total Assets $9,199,857 $9,238,759
========== ==========
</TABLE>
See Accountants' Review Report and Notes
to the Financial Statements
5
FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF FINANCIAL POSITION
LIABILITIES AND STOCKHOLDERS' EQUITY
FRESHSTART VENTURE CAPITAL CORP.
<TABLE>
November 30, May 31,
1996 1996
<S> <C> <C>
LONG TERM DEBT:
Debentures Payable to SBA (Note 6) $4,390,000 $4,380,000
4% Cumulative, 15 Year Redeemable
Preferred Stock (Note 7) 1,410,000 1,410,000
__________ __________
Total Long Term Debt 5,800,000 5,800,000
__________ __________
CURRENT LIABILITIES:
Loans Payable - Line of Credit (Note 5) - -
Accrued Interest 120,525 121,603
Other Current Liabilities 35,357 34,493
Dividends Payable (Note 9) 9,400 122,202
__________ __________
Total Current Liabilities 165,282 278,298
__________ __________
Total Liabilities 5,965,282 6,068,298
---------- ----------
Commitments and Contingencies
(Notes 14 and 17) - -
STOCKHOLDERS' EQUITY
4% Cumulative, 15 Year Redeemable Preferred
Stock-$1 Par Value; 10,000,000 Shares
Authorized, 1,410,000 Shares
Issued and Outstanding
(See Long Term Debt) (Note 7) - -
3% Cumulative Preferred Stock - $1 Par Value:
No Shares Issued and Outstanding
(Notes 7 and 12) - -
Common Stock-$.01 Par Value: 3,000,000 Shares
Authorized, 1,096,688 Shares Issued and
Outstanding (Note 12) 10,967 10,967
Additional Paid in Capital (Note 8) 2,857,616 2,762,116
Retained Earnings 79,493 15,379
Restricted Capital-Realized Gain on
Redemption (Note 8) 286,499 381,999
__________ __________
Total Stockholders' Equity 3,234,575 3,170,461
__________ __________
Total Liabilities and
Stockholders' Equity $9,199,857 $9,238,759
========== ==========
Net Assets Per Share $ 2.87 $ 2.88
========== ==========
</TABLE>
See Accountants' Review Report and
Notes to the Financial Statement
6
FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF OPERATIONS
<TABLE>
Six Months Ended Year Ended
November 30, May 31,
1996 1995 1996
<S> <C> <C> <C>
REVENUE:
Interest Earned on
Outstanding Receivables $ 519,193 $ 500,412 $1,027,815
Interest Income-Idle Funds 3,052 3,949 6,129
_______ _______ _________
Total Revenue (Note 2) 522,245 504,361 1,033,944
------- ------- ---------
EXPENSES:
Interest (Note 6) 149,808 159,411 307,764
Professional Fees 23,355 23,953 50,776
Officers Salaries
(Notes 11 and 13) 72,573 72,573 145,146
Other Salaries 11,008 15,215 23,126
Other Operating Expenses 55,001 40,282 90,450
Pension Expenses
(Notes 10 and 11) 10,886 8,591 16,180
Depreciation and Amortization
(Note 2) 6,757 4,353 9,710
_______ _______ _________
Total Expenses 329,388 324,378 643,152
------- ------- ---------
Net Investment Income 192,857 179,983 390,792
Unrealized Depreciation in
Value of Investments
(Notes 2 and 3) - - 35,000
_______ _______ _________
192,857 179,983 355,792
PROVISION FOR TAXES:
Current Income Taxes
(Note 2) 1,840 1,433 1,567
_______ _______ _________
Net Income $ 191,017 $ 178,550 $ 354,225
======= ======= =========
Earnins Per Share of Common Stock
(Note 2) $ 0.14 $ 0.09 $ 0.27
======= ======= =========
Dividends Paid Per Share
of Common Stock $ 0.09 $ 0.09 $ 0.27
======= ======= =========
Weighted Average Shares of
Common Stock Outstanding 1,096,688 1,096,688 1,096,688
========= ========= =========
</TABLE>
See Accountants' Review Report
and Notes to the Financial Statements
7
FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
Six Months Ended Year Ended
November 30, May 31,
1996 1995 1996
<S> <C> <C> <C>
4% Cumulative, 15 Year Redeemable
Preferred Stock - $1 Par Value:
10,000,000 Shares Authorized,
1,410,000 Shares Issued and
Outstanding (Long Term Debt)
(Note 7 - - -
________ ________ _________
Common Stock-$.01 Par Value:
3,000,000 Shares Authorized,
1,096,688 Shares Issued
and Outstanding 10,967 10,967 10,967
________ ________ _________
Additional Paid in Capital -
Beginning of Period 2,762,116 2,571,117 2,571,117
Amortization of Restricted
Capital (Note 8) 95,500 95,501 190,999
________ ________ _________
Additional Paid in Capital -
End of Period 2,857,616 2,666,618 2,762,116
________ ________ ________
Retained Earnings
Balance, Beginning
of Period 15,379 13,660 13,660
Net Income 191,017 178,550 354,225
Dividends Paid
and Accrued (126,903) (126,903) (352,506)
________ ________ _________
Balance, End of Period 79,493 65,307 15,379
________ ________ _________
Restricted Capital
Gain on Redemption of
3% Preferred Stock
(Note 8) 381,999 572,998 572,998
Amortization of Gain (95,500) (95,499) (190,999)
________ ________ _________
Balance, End of Period
(Note 8) 286,499 477,499 381,999
________ ________ _________
Total Stockholder's
Equity $3,234,575 $3,220,391 $3,170,461
========== ========== ==========
</TABLE>
See Accountants' Review Report
and Notes to the Financial Statements
8
FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
Six Months Ended Year Ended
November 30, May 31,
1996 1995 1996
<S> <C> <C> <C>
CASH FLOWS PROVIDED (USED)
BY OPERATING ACTIVITIES:
Net Income $ 191,017 $ 178,550 $ 354,225
Depreciation and
Amortization Expense 6,757 4,353 9,710
Provision of Losses on
Loans Receivable - - 35,000
Decrease (Increase) in
Accrued Interest (8,642) (18,416) (21,449)
Decrease (Increase) in
Other Assets (71,561) (40,409) (57,326)
Increase (Decrease) in
Accrued Liabilities (214) (6,450) (346)
Dividends Paid and Accrued(239,705) (225,604) (352,506)
_________ _________ _________
Net Cash Provided (Used)
By Operating Activities (122,348) (107,976) (32,692)
--------- -------- ---------
CASH FLOWS PROVIDED (USED)
BY INVESTING ACTIVITIES:
Increase in Loans
Receivable (2,555,250) (2,244,750) (4,594,750)
Repayments of Loans
Receivable 1,865,034 490,760 2,155,540
Increase in Loan
Participations 630,500 1,342,500 2,227,000
Repayment of Loan
Participations (97,348) (9,330) (67,763)
Increase in Fixed Assets - (21,592) (25,936)
Decrease (Increase) in Assets
Acquired in Liquidation - - 13,344
__________ __________ __________
Net Cash Provided (Used)
By Investing Activities (157,064) (442,412) (332,565)
---------- ---------- ----------
CASH FLOWS (USED) PROVIDED
BY FINANCING ACTIVITIES:
(Decrease) in Line of Credit - - (5,000)
(Decrease) in
Restricted Capital (95,500) (95,499) (190,999)
Increase in Debenture Payable
to SBA (Net) 10,000 20,000 40,000
Sale of 4% Preferred Stock - - -
Increase in Additional
Paid in Capital 95,500 95,501 (190,999)
__________ __________ __________
Net Cash (Used) Provided
by Financing Activities 10,000 20,002 35,000
__________ __________ __________
Net Increase (Decrease)
in Cash (269,412) (530,386) (330,257)
Cash Balance - Beginning
of Period 415,102 745,359 745,359
__________ __________ __________
Cash Balance - End
of Period $ 145,690 $ 214,973 $ 415,102
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $ 150,886 $ 160,555 $ 314,491
__________ __________ __________
Taxes $ 1,840 $ 1,433 $ 1,567
__________ __________ __________
</TABLE>
See Accountants' Review Report
and Notes to the Financial Statements
9
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 1 ORGANIZATION
Freshstart Venture Capital Corp., a New York
Corporation (the "Company"), was formed on March
4, 1982 for the purpose of operating as a
specialized small business investment company
("SSBIC"), licensed under the Small Business
Investment Act of 1958 and regulated and financed
in part by the U.S. Small Business Administration
("SBA"). The Company has also registered as an
investment company under the Investment Company
Act of 1940. The Company's business is to provide
financing to persons who qualify under SBA
regulations as socially or economically
disadvantaged and to entities which are at least
fifty (50%) percent owned by such individuals.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant
accounting policies applied by the Company in the
preparation of its financial statements. The
Company maintains its accounts and prepares its
financial statements on the accrual basis of
accounting in conformity with generally accepted
accounting principles for investment companies.
Valuation of Loans and Investments
The Board of Directors has valued the investment
portfolio based upon the cost of such investments,
less a provision for loan losses. However,
because of the inherent uncertainty of the
valuation, the estimated values might otherwise be
significantly higher or lower than values that
would exist in a ready market for such loans,
which market has not in the past and does not now
exist. The provision for loan losses represents a
good faith determination by the Board of Directors
maintained at a level that, in its judgment, is
adequate to absorb losses. The balance in the
reserve account is adjusted periodically by the
Board of Directors on the basis of the fair value
of the collateral held and past loss experience.
Approximately seventy four (74%) percent of the
Company's loan portfolio consists of loans made
for the financing of taxi cab medallions and
related assets. The remaining portion of the
loans are made to various small commercial
enterprises. Substantially all loans are
collateralized by either NYC taxi medallions or
real estate and the personal guarantees of the
individual owners.
Depreciation and Amortization
Depreciation and amortization of furniture,
fixtures and leasehold improvements is computed on
the straight line method at rates adequate to
allocate the costs of applicable assets over their
expected useful lives.
Recognition of Interest Income
It is the Company's policy to record interest on
loans and debt securities only to the extent that
management and the Board of Directors anticipate
such amounts may be collected. Interest on
doubtful accounts and accounts which are 180 days
past due is not recorded until actually received.
Income Taxes
The Company has elected to be taxed as a regulated
investment company under the Internal Revenue
Code. A regulated investment company can
generally avoid taxation at the corporate level to
the extent that ninety (90%) percent of its income
is distributed to its stockholders. Therefore, no
provision for federal income taxes has been made.
The financial statements include provisions for
New York State and local minimum taxes.
10
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Earnings Per Share
Earnings per share are based on a weighted average
number of shares outstanding during the period,
less accrued dividends on cumulative preferred
stock.
Assets Acquired in Liquidation of Portfolio
Securities.
Assets acquired in liquidation of portfolio
securities are carried at estimated net realizable
value. Expenses incurred at the time of
foreclosure are charged against the assets and
adjusted to the estimated net realizable value.
Subsequent reductions in estimated net realizable
value are recorded as losses.
Recently Issued Accounting Standards.
Statement of Financial Accounting Standard No.
114, "Accounting by Creditors for Impairment of a
Loan" ("SFAS 114") was issued in May 1993 and is
effective for fiscal years beginning after
December 15, 1994. SFAS 114 generally requires
all creditors to account for impaired loans,
except those loans that are accounted for at fair
value or at the lower of cost or fair value, at
the present value of expected future cash flows
discounted at the loans' effective interest rate.
Creditors may account for impaired loans at the
fair value of the collateral or at the observable
market price of the loan if one exists. Due to
the nature of the Company's loan portfolio, SFAS
114 is not expected to have a material effect on
the Company's financial condition or results of
operations.
Other
Certain information from the prior years has been
reclassified to conform its presentation to the
current financial statements.
NOTE 3 LOANS RECEIVABLE
The Company's loan portfolio includes
participations with other lenders as presented in
the following schedule. The following is a
breakdown of the outstanding loans receivable:
<TABLE>
November May 31,
30,
1996 1996
<S> <C> <C>
Outstanding
Loans $11,718,114 $11,093,622
Loan
Participations (2,963,035) (2,495,607)
___________ __________
Net Loans
Outstanding $ 8,755,079 $8,598,015
=========== ==========
</TABLE>
Loans on non-accrual status as of November 30,
1996 and May 31, 1996 were approximately
$1,190,349 and $1,122,768 respectively,
Additionally, the total amount of interest income
not accrued was $500,649 during the year ended
May 31, 1996.
11
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 3 LOANS RECEIVABLE
(Continued)
Reconciliation of Loan Loss Reserve
A reconciliation of loan loss reserve is as follows:
<TABLE>
Six Year
Months
Ended Ended
November May 31,
30,
1996 1996
<S> <C> <C>
Balance,
Beginning $180,558 $180,558
Provision for
Loan Losses - 35,000
Charge-Offs - (35,000)
________ ________
Balance, Ending $180,558 $180,558
======== =========
</TABLE>
NOTE 4 ASSETS ACQUIRED IN LIQUIDATION OF PORTFOLIO
SECURITIES
The Company foreclosed on two loans during the
fiscal years ended May 31, 1994 and 1993. Both
loans were collateralized by real estate. The
Company's cost of the loans plus costs to obtain
title to such properties is included in the
carrying value of the assets acquired in
liquidation. The Company wrote off the balance
remaining of $13,344 against its earnings for the
fiscal period ending May 31, 1996.
NOTE 5 LOANS PAYABLE - LINE OF CREDIT
On January 15, 1995, the Company entered into an
agreement with Extebank providing for a $1,100,000
discretionary line of credit without any officer
guarantees, expiring December 15, 1995. All
advances bear interest at .5% above the prime
rate. Pursuant to the terms of the line of
credit, the Company is required to comply with
certain terms, covenants and conditions. The
Company pledged its loans receivable as collateral
for the above line of credit and was required to
maintain a minimum of $100,000 non-interest
bearing collected balance with Extebank during the
term of the line of credit. The
Company did not renew the line of credit at its
expiration on December 15, 1995.
NOTE 6 LONG TERM DEBT
The long term debt to the SBA consisted of the
following subordinated debentures as of November
30, 1996 with interest payable semi-annually:
<TABLE>
Interest Rate
Period Face
Maturity Date First Second Amount
<S> <C> <C> <C>
June 1, 2005 6.690% 6.690% $520,000
December 1, 2005 6.540% 6.540% 520,000
June 1, 2006 7.710% 7.710% 250,000
February 6, 1997 4.125% 7.125% 75,000
February 6, 1997 4.125% 7.125% 75,000
March 17, 1998 5.625% 8.625% 75,000
March 17, 1998 5.625% 8.625% 75,000
September 22,
1999 5.000% 8.000% 750,000
June 9, 1999 6.000% 9.000% 750,000
December 16,
2002 4.510% 7.510% 1,300,000
_________
$4,390,000
==========
</TABLE>
0
12
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 6 LONG TERM DEBT
(Continued)
During the six month period ended November 30,
1996, the Company paid off $240,000 in subsidized
debentures through the sale of one $250,000
unsubsidized subordinated debenture, due June 1,
2006 with interest at 7.71%.
Under the terms of the subordinated debentures,
the Company may not repurchase or retire any of
its capital stock or make any distributions to its
stockholders other than dividends out of retained
earnings without the prior written approval of the
SBA.
NOTE 7 PREFERRED STOCK
As of May 31, 1992, the Company was authorized to
issue 4,000,000 shares of $1 par value, 3%
cumulative preferred stock. Dividends are not
required to be paid to the SBA on an annual of
other periodic basis, so long as cumulative
dividends are paid to the SBA before any other
distributions are made to investors. Effective
November 21, 1989, Congress passed legislation
which required all preferred stock sold subsequent
to the effective date to pay a four percent
cumulative dividend and to provide for a mandatory
fifteen year redemption. Subsequently, the
Company amended its certificate of incorporation
creating a Class A Preferred Stock, $1 par value,
which consisted of the 1,520,000 outstanding
shares of preferred stock and to change the
existing 2,480,000 authorized but unissued shares
of preferred stock into a new Class B Preferred
Stock, $1 par value, which will carry a four
percent cumulative dividend rate and a mandatory
fifteen year redemption.
All preferred shares are restricted solely for
issuance to the SBA. Effective November, 1994,
the Company amended its certificate of
incorporation authorizing an additional 1,000,000
shares of four percent preferred stock and
reclassifying all 1,520,000 authorized and
unissued shares of three percent preferred stock
as 4 percent preferred stock. The effect of the
amendment authorized 5,000,000 shares of 4 percent
cumulative preferred stock.
NOTE 8 RESTRICTED CAPITAL - UNREALIZED GAIN ON
REDEMPTION
Repurchase of 3% Preferred Stock
The Company and the SBA entered into a repurchase
agreement dated May 10, 1993. Pursuant to the
agreement, the Company repurchased all 1,520,000
shares of its $1 par value, 3 percent cumulative
preferred stock from the SBA for a purchase price
of $.36225670 per share, or an aggregate of
$550,630. The repurchase price was at a
substantial discount to the original sale price of
the 3 percent preferred stock which was sold to
the SBA at par value or $1.00 per share.
As a condition precedent to the repurchase, the
Company granted the SBA a liquidating
interest in a newly created restricted capital
surplus account. The surplus account is equal to
the amount of the repurchase, less $14,373 of
expenses incurred in connection with the
repurchase, and is being amortized over a sixty
(60) month period on a straight-line basis.
Should the Company be in default under the
repurchase agreement at any time, the liquidating
interest will become fixed at the level
immediately preceding the event of default and
will not decline further until such time as the
default has been cured or waived. The liquidating
interest will expire on the later of (I) sixty
(60) months from the date of the repurchase
agreement, or (ii) if any event of default has
occurred and such default has been cured or
waived, such later date on which the liquidating
interest is fully amortized.
13
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 8
(Continued)
Should the Company voluntarily or involuntarily
liquidate prior to the amortization of the
liquidating interest, any assets which are
available, after the payment of all debts of the
Company, shall be distributed first to the SBA
until the amount of the then remaining liquidating
interest has been distributed to the SBA. Such
payment, if any, would be prior in right to any
payments made to the Company's shareholders.
NOTE 9 DIVIDENDS
Dividends paid to the SBA for the fiscal
year ended May 31, 1996 was $45,092. Total
dividends
paid to common stockholders for the fiscal year
ended May 31, 1996 were $296,106. The Company is
contingently liable to the SBA for $4,700 in
preferred dividends due for the one month ended
November 30, 1996. Effective October 31, 1996,
and for the five month period then ended, the
Board of Directors declared a three percent
dividend to holders of common stock totaling
$98,702 and $18,800 to the SBA on its 4%
cumulative preferred stock. These dividends were
paid in November, 1996
NOTE 10 MONEY PURCHASE PLAN
Effective for the fiscal year ending May 31, 1989
the Company initiated a defined contribution
pension plan. The eligibility requirements for
participation in the plan are a minimum age of 21
years old and 24 months of continuous employment
with the Company. All employees and officers
were covered under the plan for this fiscal year
ended May 31, 1996. Contributions are currently
limited to ten percent of each participants
compensation. Total contributions made for the
fiscal year ended May 31, 1996
was $16,180.
Total contributions provided for the six months
ended November 30, 1996 and 1995 were $10,886 and
$8,591 respectively. All contributions to the
plan have been funded on a current basis.
NOTE 11 MANAGEMENT FEES
The SBA approved the Company's total compensation
of $225,000. Compensation is inclusive of
officers' and staff salaries and pension
contributions.
NOTE 12 STOCKHOLDERS' EQUITY - PRIVATE PLACEMENT
Effective April 21, , 1992 pursuant to a private
placement, the Company sold 56,304 shares of
common stock at a price of $12 per share to
accredited investors. Total capital raised was
$675,648 less private placement costs of $16,274,
including $9,660 paid during the six months ended
November 30, 1992. Substantially all of the
proceeds were used to repurchase the 1,520,000
shares of its $1 par value, 3 percent preferred
stock held by the SBA and to make additional
investments. The net proceeds received also
enabled the Company to obtain additional leverage
from the SBA in the form of preferred stock and
debentures.
Pursuant to SBA regulations, all SSBIC's issuing
debentures subsequent to April 25, 1994 were
required to amend their certificates of
incorporation to indicate that they have
consented, in advance, to the SBA's right to
require the removal of officers or directors and
to the appointment of the SBA of its designee to
take such action in the event of the occurrence of
certain events of default. Effective November,
1994, the Company amended its certificate of
incorporation in accordance with the relevant
provisions of the SBA regulations.
14
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 12 STOCKHOLDERS' EQUITY - PRIVATE PLACEMENT
(Continued)
On January 12, 1996, the Company filed an
amendment to its certificate of incorporation
which increased the number of authorized shares to
13,000,000 share of capital stock consisting of
10,000,000 shares of $1 par value, 4 percent
cumulative, 15 year redeemable preferred stock and
3,000,000 shares of $.01 par value, common shares.
The financial statements are presented after
giving effect to these changes. The amended
certificate of incorporation also provided for a 2
for 1 stock split with respect to the Company's
shares of common stock, $.01 pare value per share,
for two shares of common stock for $.01 par value
per share. The effect of the amendment was to
increase the 274,172 issued and outstanding shares
of common stock to 548,344 shares.
The Board of Directors approved a two for one
stock split with respect to the Company's shares
of common stock which were effective immediately
prior to the effective date of the registration
statement. The effect of the stock split was to
increase the 548,344 issued and outstanding share
of common stock to 1,098,688 shares.
The Stockholders' Equity section of the financial
statements is presented after giving effect to an
amendment to the certificate of incorporation
which was filed in January, 1996 and the October,
1996 two for one stock split.
NOTE 13 RELATED PARTY TRANSACTION
The Company currently leases office space from a
real estate partnership, whose partners consist of
certain officers and directors of the Company, for
$1,500 per month plus certain extraordinary
operating expenses. The lease expires in
November, 1997 with a minimum annual rental of
$18,000. Total rental expense under this lease
was $18,000 for the year ended May 31, 1996.
Certain officers and directors of the Company are
also shareholders of the Company. Officers'
salaries are set by the Board of Directors and are
also subject to maximum compensation set by the
SBA. For the fiscal year ended May 31, 1996,
$159,661 in officers' salaries, including pension
contributions, was paid.
NOTE 14 SIGNIFICANT CONCENTRATION OF CREDIT RISK
Approximately seventy four (74%) percent of the
Company's loan portfolio consists of loans made
for the financing and purchase of New York City
taxicab medallions and related assets.
NOTE 15 FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISKS
The Company maintained approximately $267,468 in
one bank in excess of amounts that would be
insured by the Federal Depository Insurance
Corporation
NOTE 16 SUBSEQUENT EVENTS
The Company filed a registration statement with
the Securities and Exchange Commission to sell up
to 1,000,000 shares of common stock, at a public
offering price of $5.00 per common share, for an
aggregate offering price of $5,000,000.
15
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 16
(Continued)
On December 3, 1996, the Company completed the
sale of 1,072,000 shares of its common stock at a
public offering price of $5.00 per share. The
gross proceeds raised by the Company through the
sale of its common stock was $5,360,000 less the
total costs of $1,404,540. The net proceeds of
$3,955,460 received by the Company, will be used
to increase the Company's private capital which
will be available for additional leverage from the
SBA.
On January 17, 1997, the Board of Directors of the
Company declared an estimated dividend of $.11 per
share for the third quarter ended February 28,
1997.
NOTE 17 COMMITMENTS AND CONTINGENCIES
Minimum future lease obligations on the Company's
long term non-cancelable operating lease will
total $18,000 over the remaining twelve (12)
months of the lease term ending November, 1997.
During the fiscal year ended May 31, 1996, Scott
Printing filed a lawsuit against the Company.
Scott Printing is seeking an approximate amount of
$50,000 for printing work performed during the
Company's proposed public offering. The Company
is contesting the amount claimed and intends to
vigorously defend the action. As such, no amounts
have been presented in the financial statements.
16
FRESHSTART ENTURE CAPITAL CORP.
SUPPLEMENTAL SCHEDULES
NOVEMBER 30, 1996
SCHEDULE I - LOANS RECEIVABLE
<TABLE>
Type of Number of Maturity November
Loan Loans Interest Rate Date 30, 1996
<S> <C> <C> <C> <C>
NYC Taxi
Medallion 175 10.00%-15.00% 1-7 years $6,485,936
Services 1 14.50%-15.00% 1-7 years 115,437
Auto Repair
Services 8 10.00%-15.00% 1-4 years 710,776
Auto
Dealership 1 12.00% 1 year 101,946
Renovation and
Construction 1 10.50% 5 years 134,852
Retail
Establishment 3 11.25%-13.00% 1-4 years 300,887
Restaurant 2 13.00%-15.00% 1 year 186,660
Gasoline Service
Station 3 9.50%-12.00% 1 year 289,501
Manufacturing 1 15.00% 1 year 151,572
Laundromat and
Dry Cleaners 5 12.00%-15.00% 1-4 years 154,284
Medical
Offices 3 11.63%-15.00% 1-3 years 123,228
Video Rental 1 14.00% 6 years -
___ __________
TOTAL 204 $8,755,079
</TABLE>
Substantially all of the above loans are collateralized by
either New York City taxi medallions or real estate
holdings.
SCHEDULE VII - SHORT TERM BORROWINGS
Short term borrowing activities for the periods presented
were as follows:
<TABLE>
Weighted Maximum Average
Balance Average Amount Amount
Category of End of Interest Outstanding Outstanding
Borrowing Period Rate During Period During Period (1)
<S> <C> <C> <C> <C>
May 31,
1996 (2) $ - 9.29% $ 5,000 $ 5,000
November 30,
1995 $ 5,000 9.31% $205,000 $ 25,879
November 30,
1996 $ - 0.00% $ - $ -
</TABLE>
(1) Computed based on weighted average of amount
outstanding during the period.
(2) The Company did not renew its Line of Credit.
17
FRESHSTART VENTURE CAPITAL CORP.
SUPPLEMENTAL INFORMATION
SELECTED PER SHARE DATA AND RATIOS
FOR THE YEAR ENDED MAY 31, 1996
AND THE SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1995
<TABLE>
For the Six Months Year Ended
November 30, May 31,
1996 1995 1996
<S> <C> <C> <C>
Per Share Data
Investment Income $ 0.46 $ 0.46 $ 0.94
Investment Expenses (0.30) (0.29) (0.58)
________ _______ _______
Net Investment Income 0.16 0.17 0.36
Net Realized and Unrealized
Gains on Losses on
Securities - - (0.03)
Private Placement Costs - - -
Gain on Preferred Stock
Buy Back - - -
Dividends-Common Stock (0.09) (0.09) (0.27)
Dividends-Preferred
Stock (0.02) (0.03) (0.06)
Sale of Common Stock - - -
________ ________ _______
Net Increase/Decrease
in Net Asset Value 0.05 - -
Net Asset Value -
Beginning of Period $ 2.88 $ 2.89 $ 2.88
________ ________ _______
Net Asset Value -
End of Year $ 2.93 (1) $ 2.94(1) $ 2.88 (1)
======== ======== ========
Net Asset Value - End
of Year Excluding Retained
Earnings (2) $ 2.87 (1) $ 2.87(1) $ 2.88 (1)
======== ======== ========
Ratios
Ratio of Expenses to
Average Net Assets 0.00% 10.2% 20.3%
======== ======== ========
Ratio of Net Income to
Average Net Assets 0.00% 5.6% 11.2%
======== ======== ========
Weighted Average of Common
Shares Outstanding 1,096,668 1,096,668 1,096,668
_________ _________ _________
</TABLE>
(1) The net asset value includes the unamortized portion
of the realized gain from the repurchase of three
percent stock and the undistributed retained earnings
at the end of the period. The unamortized balance
remaining in the preferred restricted capital
account is $286,499.
(2) Excluded undistributed retained earnings at the
end of the period.
18
